Thanks For Stopping By To Meet Up With Mike Root…

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When I first began my professional career I was absolutely intrigued with marketing. I still am. One of my first lessons is that marketing revolves around the customer; not necessarily the product. What does the customer want—what is the customer actually buying—that’s the key question. Customers that want GoPro cameras are not buying a video camera; they’re buying the adventurous lifestyle; they’re joining the adrenaline rushing international community.

We have spoken about ecommerce and the competition that those companies provide to traditional retailers across all industries. Let’s look at why those companies have been succeeding in earning the customer’s money. The ecommerce goods sold aren’t always less money (in the case of furniture typically ecommerce accounts are more expensive than traditional furniture stores). Yet ecommerce is growing in the furniture industry.
From my perspective there are two factors that have led to the emergence of ecommerce: The first is convenience. The second is trust.
Regarding convenience, the ecommerce accounts have made it so easy for customers to search (even now through image and video recognition) click, buy and have the goods delivered to one’s dwelling quickly. If there’s a return—no problem the ecommerce account will coordinate it all. This saves the customer countless hours of re-search, finding exactly what they want, and overall dealing with the hassle of other people. It’s that easy for the customer.

For trust there are two elements. First people trust that packages ordered from Amazon will arrive promptly and be exactly what they wanted. Same goes for Wayfair, Hayneedle, Overstock, and others. Customers have been conditioned to trust that the goods ordered from these sites are the same quality that they can buy in stores.

The other aspect is the peer review. Before making a buying decision customers are able to see what other people have said about the products. This social review is critical in a buying decision—a non-partisan, honest review from a fellow customer is providing their experience of the product and the company. That’s something that has not been replicated in traditional stores.
While those two aspects have led to a customer dollars going online, there’s still a strong place for traditional retail. The ability to actually see, touch, try out and even customize products is much easier done in store than online. The novelty of working face to face with person-able experts in their field is still more powerful than seeing an image online. You can read about many brands that, despite being ecommerce/technology focused businesses, have really embraced the personal interaction aspect of retail. A couple that come to mind immediately are Bonobos in menswear and Warby-Parker for eye glasses.

There appears to be a desperation in the furniture industry that retail is moving quickly online. Before making haste decisions on what actions your company needs to make, answer the question “Why will customers choose to do business with you versus any and every possible alternative?” There are inherent advantages to brick and mortar as there are inherent advantages to online only. By understanding what your company really provides to your customer base, your unique selling proposition, will help you craft a success plan for 2018 going forward.

Happy New Year!
Jerry Epperson is one of the more insightful analysts of our industry, and his recent newsletter was no exception helping separate the wheat from the chaff. He is optimistic about 2018 for the furniture business. His research and data about consumer confidence, millennials starting to form households, and the ease of ship-ping with the internet made him feel excited about this year’s sales prospects. However, his reflection on where American manufacturing has come from the 1960’s until 2016 evidences a death spiral.

Having had some of my best years in late 60’s and early 70’s with American made products, the truth hit home. My days with Liberty Chair, Bernhardt Manufacturing, Kingsley Upholstery, and eventually Pilliod Cabinet gave me a package that was only limited by the ability to get merchandise fast enough to satisfy the retailer’s needs. At that time most volume was being done by small to medium sized retailers, many of which catered to a more affluent growing middle class. Department stores dominated bedding sales and promotions based on large ROP ads in local newspapers. Fast forward to the last 10 years and see what changes have occurred. The report that 85% of wood furniture is now imported – mostly from Asia, 46% of upholstery in 2016 came from China and other neighbors with an outsize amount of that volume in leather products.

Many of the goods, now being imported at popular prices, are delivered with inherent cost advantages that trump domestic manufacturing:
 Longer production runs are more economical
 Cheap foreign labor with high work ethic
 Foreign government assistance allowing for huge investments in facilities and technology.
 No quarter to quarter financial accountability
 Low threshold of environmental responsibility

Now look at the retail landscape. The capital required to compete today is enormous. Regional powers – many of whom are expanding into national powers with the use of private equity money – manufacturer’s owned stores ala Lazy Boy, Ethan Allen, Ashley, and Life Style chains from R.H., Create and Barrel, Pottery Barn to Brookstone and Relax a Back provide additional competition for consumer dollars.
The fact is the pressure to get bigger and bigger has caused a deflation in retail prices so the $499 bedroom, the $299 sofa or 5 pc casual dining means the need to sell a lot more units just to stay even. Couple that with Internet Retailers picking off ITEMS that consumers find easier to buy than going into a store and being pressured or confused by the mass of stuff and it’s tough!
The year of 2018 has great potential but traditional retailers have to question each facet of what they project to their customer. Just offering 6 to 8 years no interest or today sale of sales may not stimulate the very savvy new breed of search oriented consumers. They have determined that price is not their most important criteria. Selection, reviews, product information and instant gratification seems to be the playbook of the better internet players. And don’t forget easy returns. (Did you hear about the lady who returned a Christmas tree to Costco on January 4th because it was dying? And they gave her a refund!!!)

Take the next few weeks to really drill down on what you are projecting to your audience. Finding merchandise that is unique in your market, audit social media to see what excites young couples, beef up your website so your store will be a destination after they search Amazon, Wayfair, Crate and Barrel etc. After being a part of this furniture evolution of the last 50 years, I am confident that good merchants will survive and prosper in 2018 and beyond! And of course we are here to help you on the journey. Smooth Sailing!

My brother is a commercial realtor with International brand Colliers. He has indicated that there is definitely a sea change going on in the industry as it relates to retail space and malls. Lenders are not as excited about new mall construction, store traffic seems to be down, and the new retail formats seem to be coming from online retailers testing their concepts in physical stores.

We read headlines often promoting the storyline how shopping at home and technology are the death of retail. The sad fact is that many retail brands are no longer relevant whether by not staying up with current trends and fashions or by bad management.

There seem to be a number of trends that may be reshaping conventional retail. New distribution methods to accommodate same day delivery is one example. Many retailers are using new technologies to lessen the amount of in-store stock. Not only does this decrease inventory costs, but also requires less physical space that is rented. Realtors are calling this a “rightsizing” of space determining exactly what their needs are for each market. There is also something called a “Dark Store” where retailers take an underperforming store and turn it into a fulfillment center in an urban center where there a demand for same day delivery.

Internet retailers are taking a small brick and mortar store space in major metros, whether as a pop up or permanent space, and use that as a way to convert customers. There is a tremendous amount of competition online so this is a way to engage customers on the product in heavy traffic areas. They then try and drive customer online for sales. There is no inventory but samples of product to be delivered from a warehouse.
Retailers are gong to have to become much more experiential in order to get customers to come into their stores. Otherwise the customer will default to sitting in their living room and buying online. There has to be balance be-tween online and offline where the transaction is seam-less. This benefits the brick and mortar retailer that can execute in store and online versus online only.

People are using their mobile devices far more than ever. Mobile is huge and retailers need to invest because every-one is glued to a mobile device. A strong brand alliance can be created for those astute retailers who embrace it.

If there are any specific real estate questions you may have feel free to give Terry Root a call 402-578-1194.

As I foretold last month, there’s a couple of things I am watching develop in 2018 besides the rightsizing above.
1. Mobile will has become a very important ecommerce tool. How that plays for furniture transactions will be interesting. Stores need to be where the consumer is.
2. Mobile will be important for augmented reality. The tests Jay has been involved with AR suppliers indicate that 2018 could be a very big year for this technology. We showcased it over the holidays with family outside the industry and the Millennial generation thought it was the coolest thing. Call for a demonstration.
3. Enhanced websites with 3D images. Driven by consumers desires to pre-shop or buy online, the level of information and images has to get much better. Again, Jay is working with a supplier for enhanced 3D graphics that is very cool and economical.

Well here we are for a Christmas issue and a year-end windup. All I can say is THANKS! In spite of some of the most challenging landscapes 2017 was a success for most of our key retailers. Traversing the rocky road between their conventional business, and the mobile world that e-commerce has introduced, has left brick and mortar stores either energized like Jake Jobs at A. F. W, or scared stiff as many others profess. The Dec. 3rd issue of Furniture Today spotlighted the many sides of the internet retailing from analysis of 3 major web giants: Amazon, Overstock and William Sonoma. My take was that in each of their conference calls each talked about the necessity of blinding speed when the consumer clicks on it! But in their own way they indicate that a physical presence is going to be a part of the future of their business model.
It’s going to be fun to watch. Besides this giant struggle, I think 2018 is going to have supply chain interruptions. Whether it be China’s crackdown on manufacturers (and possible a mini trade war), to severe short-age of truck drivers, especially in the short haul business, and cost escalation as inflationary winds below in.

As always Mike, Jay and I are inordinately involved in study, attending conferences, and listening to astute retailers and leaders in the wholesale distribution end of the furniture industry. Please let us be your sounding board to trends and challenges! As your partner we will continue to bring you our best judgements on profiting from endeavors. Merry Christmas and Happy and Prosperous New Year.

It is no longer a secret—Amazon is moving into the home furnishings business. Quickly. Last year Amazon did over $3 Billion in furniture sales—and that’s with furniture not being the core focus! To strengthen their grip on the furnishings niche, there have been recent confirmed reports that Amazon is launching two new private label furniture brands: The Rivet– mid-century modern living room– and Stone & Beam– higher end upholstery, to further display the commitment Amazon is dedicating to the industry.
I would argue that Amazon selling furniture is more than just trying to sell product in another space. Recently I had lunch with a friend who works in the private equity field, specializing in technology companies. He made a very interesting comment when talking about trends he sees with his portfolio companies
He started by talking about how technology has/is removing many layers of competition. We talked about current businesses that will eventually be defeated by companies that do not exist today. Customers are agnostic about where they buy from; all the customer wants is a quality product, reasonably priced, with outstanding service. The key comment he made was that businesses really need to own their customer. This is not a cheapest price, most advertisement issue; it’s about owning their customer and providing the best possible service to keep them coming back to you.”
Going full circle back to Amazon: They know they own their customer. With their Prime subscribers, outstanding customer service and logistics always improving (faster, cheaper and able to ship larger items easily) Amazon owns their customer. It does not matter if their customer is looking for toothpaste, furniture, or groceries—Amazon knows that a customer will give them the chance at making the purchase through them.
Owning your customer is more than just putting out ads with special prices for the week; it is more than a pretty, transactional website. Those are elements (tools) to get the customer interested in your store. How you get them to buy from you one time and have such a great experience that they continue coming back to you repeatedly is the winning advantage. A couple things that come to mind are:
 – Customer service that is friendly, resolves customer issues quickly and offers the customer a reason to come back for their inconveniences (discount or other personalized offer)
 – Logistics that over delivers on customer expectations—think quick, cost effective delivery and setup (not curbside)
 – Product offers that customers have expressed they are interested in—either through their online product search or products they saw in your store.
All of the above concepts—plus more that are still being developed—are part of the Omni channel experience. This is how the best retailers—Amazon, IKEA, Wal-Mart—own their customer base.

There is no doubt that Amazon will be in a brick and mortar business beyond their Whole Foods acquisition at some point in the future. They struck a deal at Kohl’s as a place for consumers to drop off returned online purchases and to sell Amazon voice activated devices that allow customers to order products from the comfort of their own home. Alexa, send me a Serta recliner. With struggles at Sears, JC Penneys or maybe even Macy’s how long will it take before Amazon makes their next big storefront acquisition. Your only means of survival over time is to own your customer. Do what the customer wants or needs better than anyone else and you win.

This past year has been an interesting one for observers of the furniture industry. I dare say that 2017 could be one of the most trans-formative years for retail based on the immense pace that technology has thrust on the industry. 2008 was for some cataclysmic as retail-ers struggled to survive while others gobbled up market share. But today is different . Here are five of my takeaways from this past year. These are not meant to be critical of any operating model, just observations to consider as you plot out your plans for 2018.
1. 2017 threw many in our industry to a soul searching meaning for their companies future identity. The Omni Channel concept of having your online doorstep be the face of the business equal to the brick &mortar store is shaking things up. As I have written before, the Wayfairs and Amazons view themselves as tech companies and play by different bottom line rules than traditional retailers. But what they are doing is taking business out of the market like IKEA does when it sells a $49 entertainment stand. We can say that’s not our customer but at the end of the day the customer has met a need they had and they are out of the market until they have another need. They buy a few times from a vendor and a pattern emerges. Furniture retailers are scrambling to figure out their online presence to compete.

2. Door swings are down across most furniture retail storefronts. There is not as much need for the consumer to come into the store for pre-shopping because they now can go to the Internet from the comfort of their own living room. A friend who is successful as a mortgage broker for big projects has indicated that retail store financing is one of the toughest categories to get approved because most bankers want to steer clear of the death of retail. But people still need to buy stuff and that will be done thru retail in part in stores and in part online. The store of the future needs to give consumers a reason to show up physically. Christ Walton, an independent consultant and former vice president of Target Store of the Future brilliantly describes retail stores of the future like this “They will be one-part Amazon, one-part Starbucks, one-part Bonobos and one-part Ikea, shrouded in the customer-focused ethos of a casino.”

3. Ashley is to furniture what Amazon is to retail. Much like Amazon has deep pockets, huge customer bases, and great logistics for an online player, Ashley through its retailers & retail stores is equally dominant to the furniture industry. Personally Amazon makes it very easy for me as a consumer to buy. The more they are in the space, the more likely traditional brick & mortar stores will lose incremental sales needed to stay afloat. On the other hand, Ashley makes it extremely easy for retailers to do business with them. But Ashley is every retailers greatest competitor either by selling the same thing in your market through another brick and mortar vendor or by selling online and delivering through an Ashley Home store. The greatest threat to the furniture channel is every store looks the same with Ashley products. That sameness drives consumers online to find something different than what they see in every store in America. Be careful with the vendors you support. Just like Amazon is working diligently to capture customer data so they can sell more of your customers, there will come a time when Ashley realizes they do not need you and will be able to go directly to your customers through their website and store network.

4. In my dad’s era, Louie Blumkin was a master of working with vendors. He had his favorites but he would always be respectful of the vendors because he never knew when one might get hot. Retailers today should be mindful of nurturing vendor relation-ships rather than short term demands that put retailers at odds with manufacturers. At some point the pendulum will swing the other way with technology allowing manufacturers if they choose to sell direct to the consumer. If there is friction in the relation-ships, vendors may very well decide that is a better path. We are in a unique position to observe best practices on this because we work closely with quality vendors. For more details give me a call.

5. The competition is no longer selling furniture. Apple has sold more than one billion iPhones worldwide from 2007 to 2016. In the first quarter of 2017, iPhone sales accounted for more than $54 billion. On Nov. 3 Apple started shipping IPhone X, a $1000 cell phone. I could trade them a Hughes sofa, loveseat, recliner, a set of Progressive tables, media console, and dining set before I reach $1000. As goofy as this sounds, todays customer is a lot more excited about $50 a month for a phone than furniture. Furniture is just not as sexy or compelling as other options.

So that’s my list. As I wrote the column I realized there are several ideas to look forward into 2018 that I’ll report on in January. Hope you have a joyous and healthy holiday season. We look at all of our customers and factories as partners. We truly appreciate your business and look forward to building a prosperous 2018 together.